To the Trenches: The Tort War Is Raging On

Sunday

Jun 22, 2008 at 4:52 AM

Corporate interests have won several victories, but trial lawyers continue to try to undo legislation restricting litigation and are pursuing new strategies of their own.

IN a Washington ballroom bedecked with flags honoring explorers who overcame oceans and mountains to pursue international trade, Thomas J. Donohue congratulated the assembled modern merchants — a group of executives, lobbyists and lawyers — for challenging a more mundane adversary.

“It took guts, bravery and vision to get behind what must have seemed like an insurmountable task — taking on the powerful trial bar,” said Mr. Donohue, the chief executive of the United States Chamber of Commerce. “We have succeeded beyond our expectations.”

There were plenty of reasons for self-congratulation at the dinner, held earlier this month to commemorate the 10th anniversary of the chamber’s Institute for Legal Reform. Some of the best-known plaintiff-side lawyers in the country — Richard F. Scruggs, Melvyn I. Weiss and William S. Lerach — have all pleaded guilty to charges that they tried to manipulate the justice system. The very phrase “trial lawyer” has become associated with unadulterated greed; the Association of Trial Lawyers of America now calls itself the American Association for Justice.

But it is still too early to declare an end to the so-called tort wars, a decades-old conflict over the rules governing civil lawsuits. Corporate interests have won several potent victories, but trial lawyers continue to try to undo legislation restricting litigation and are pursuing new strategies of their own.

Businesses count among the victories federal legislation passed in 2005 that made it harder to file class-action lawsuits in state courts, where judges and juries were often perceived as hostile to business. In state courts, where most civil litigation plays out, the number of suits involving auto accidents, allegations of medical malpractice and the like fell steadily from 1995 to 2005, according to the National Center for State Courts. The Chamber of Commerce says the number of megaverdicts for more than $100 million dropped to 2 last year, from 27 in 2000.

NEVERTHELESS, there are battles in individual states over judicial campaigns and legislative initiatives. The number of class-action lawsuits filed in 88 federal courts rose 72 percent from 2001 to 2007, partly because of that 2005 law. (Presumably, the number of class actions in state courts has fallen, although this data is hard to come by.) And while a study released in December by Towers Perrin, the consulting firm, found that total “tort costs” fell in 2006, it predicted that costs would rise as a souring economy prompts more lawsuits.

The chief executive of the American Association for Justice, Jon Haber, is skeptical of the results of spending by the Chamber of Commerce and its members to hobble lawsuits. And he defends the new name of his organization as reflecting what it does, rather than who its members are.

“The chamber’s political portfolio looks a lot like the portfolio of many Wall Street banks these days — a large number of bad bets that did not pay off but cost their members an awful lot of money,” Mr. Haber said.

He can rattle off recent victories for trial lawyers as quickly as he can list the goals his members hope to achieve. Voters in Washington State, for example, last year approved a bill that allows people to collect triple damages if an insurer unreasonably denies a claim.

In Colorado, an initiative to limit lawyers’ fees was answered with a barrage of proposals that would limit executive compensation, cap real estate sales commissions and raise the maximum amount of damages payable as a result of shoddy construction, among other things. All the initiatives were eventually withdrawn.

At the federal level, trial lawyers are pushing for a law that would make it easier for consumers to sue instead of having to submit to binding arbitration, as many contracts — for credit cards, for example — now require. The trial lawyers are also trying to make it harder for defendants to keep legal proceedings secret. “There are a number of things that are very much pro-civil justice that are starting to work through Congress,” Mr. Haber said.

Strikingly absent from debates over who should be able to sue whom, when and for how much is any discussion of the fairest and most effective way to make sure that true victims are appropriately compensated for injuries and that people without authentic injury are not compensated.

“That’s not the conversation we’re having,” because the only voices heard belong to advocates of one side or the other, said Robert L. Rabin, a law professor at Stanford. “Those advocates reflect advocacy interests — that is, either defense-side interests or plaintiff-side interests — rather than some overview of global fairness.”

Civil lawsuits seek to compensate victims of negligence or wrongdoing, like the unlucky passer-by hit by a falling piano. But how much of a penalty should such suits exact, above and beyond compensation, in order to deter wrongdoing? What about someone traumatized by the sight of the accident, or maybe a whole class of potential victims? And whom can these people sue — the movers, the piano’s maker, its owner?

The tort wars over such questions have waxed and waned for decades since the Industrial Revolution and the concurrent growth in industrial-scale accidents, said John Witt, a law professor at Columbia University.

“There are commencement addresses at law schools in the 1890s,” Professor Witt said, “where old railroad lawyers are lamenting the rise of a new class of oftentimes immigrant lawyers who don’t have access to the old ways of getting clients, and they strike out on this new business model” of actively seeking clients and charging them a fee that is a percentage of whatever was won in court.

The fight to change tort laws has developed into a big business in itself, with plenty of people invested in keeping the battle going. Neither Mr. Haber nor Mr. Donohue would say flatly that his side was winning. Doing so would make it harder to lure contributions — a point made by people on both sides of the debate.

Officials at the Institute for Legal Reform, the chamber unit, would not specify how much it spends annually on media and publicity campaigns, except to say it’s in the millions. And many organizations, nationally and in the states, lobby on both sides.

But the chamber itself, which represents millions of businesses of all sizes, is the biggest spender on the lobbying. In 2006, it spent $72.7 million, according to the Center for Responsive Politics, a nonprofit research group that tracks money in politics. On the trial lawyers’ side, the American Association for Justice spent $8.3 million that year.

Those numbers do not paint a complete picture, though. For years, business lobbyists say they focused on getting favorable legislation passed. But the restrictions enacted often proved vulnerable to legal challenges — and in states that elected judges, trial lawyers were historically more active in contributing to judges’ campaigns.

Business advocates needed to adjust their thinking, said Steven B. Hantler, chairman of the American Justice Partnership, another organization that is seeking to change the civil justice system in opposition to the trial bar.

“If you were to ask a corporate lawyer, when does the litigation process start, the corporate lawyer would say, when the lawsuit is filed,” said Mr. Hantler, a former head of the chamber’s legal reform institute. “The trial lawyer would say, not at all. It starts when judges are appointed or judges are elected, and when laws are made.”

AS an assistant general counsel at the former DaimlerChrysler, Mr. Hantler was ordered by Robert J. Eaton, then co-chairman, to come up with a way to help shield from legal challenge any new laws curbing litigation.

“I remember sending Bob an e-mail shortly after the Ohio Supreme Court — this must be in 1999 — struck down tort reform legislation,” Mr. Hantler recalled. “Within an hour and a half, I was summoned to his office.”

Mr. Hantler told his boss that focusing on legislation was not enough. Mr. Eaton then instructed him, Mr. Hantler said, to develop a comprehensive strategy for changing the law.

On DaimlerChrysler’s dime, Mr. Hantler convened a meeting in the Washington offices of Gibson Dunn & Crutcher, a law firm. Among those present, Mr. Hantler said, were Theodore B. Olson, a partner at the firm who was later named solicitor general; Mike Murphy, who was a top strategist for John McCain’s presidential campaign in 2000; Clark S. Judge, a former speechwriter for Ronald Reagan who went on to the White House Writers Group, a communications firm; and Robert H. Bork Jr., who is the son of the former Supreme Court nominee and has his own firm, now called the Bork Communication Group.

They came up with what Mr. Hantler described as a multipronged strategy, involving advertising aimed at voters picking judges and continued lobbying of lawmakers. This “demonstration project,” as Mr. Hantler called it, was successful enough that the Institute for Legal Reform has expanded it over the years. At the same time, businesses have become more active in state supreme court judicial campaigns and, in the 2006 election cycle, gave twice as much as lawyers did, according to the National Institute on Money in State Politics. (In previous cycles, sometimes companies gave more, sometimes lawyers gave more.)

To help deliver a pro-business message, advocates have hit upon a ranking system. One list ranks “judicial hellholes,” as compiled by the American Tort Reform Association, and another identifies those states deemed by corporate general counsels to be most and least friendly to businesses. (That list comes from the Chamber of Commerce.)

In Mississippi, which received the worst ranking on the chamber’s list, advocates of limits on lawsuits made a special effort. In 2002 and 2004, state lawmakers passed legislation that, among other things, capped how much plaintiffs could recover in punitive damages and in noneconomic damages — compensation for pain and suffering, for example.

But Lance L. Stevens, a Mississippi lawyer and former president of the state’s association of trial lawyers, said that even after the changes to the tort laws, the state has moved up in the ranking by only a few spots. General counsels at big corporations are not critical of Mississippi because of its legal system, he said. “It is the corporate lawyers for the Fortune 500 companies expressing their general disgust for Mississippi and their mistaken belief that we are culturally retarded.”

Lisa Rickard, president of the chamber’s Institute for Legal Reform, said that the new laws limiting lawsuits in Mississippi had not been on the books long enough to have more of an effect. “It takes a long time to come out of it,” she said.

Corporate executives say they want limits on noneconomic damages in order to reduce unpredictability in jury verdicts. But the caps hurt the very people who most need help — low-income people who sustain injuries, Mr. Stevens said. People who earn a lot of money can claim significant lost income as part of their injury. The unemployed, children, the elderly or anyone else with little earning potential stands to recover less for the same injury than someone in the work force. Plaintiffs’ attorneys often get a percentage of the amount awarded to a client, so the limits mean they have a greater incentive to sue on behalf of a rich injured victim than a poor one.

“I have not filed a lawsuit for a child or a stay-at-home mom in a medical malpractice claim since 2002, because they regrettably lack economic value in the tort reform scheme” now in place in Mississippi, Mr. Stevens said.

At the federal level, legislation making it easier to move class-action lawsuits out of state courts was the major achievement for business advocates. They wanted to prevent lawyers from filing nationwide class actions in courts in counties, like Madison County in Illinois, that were perceived as hostile to corporate defendants.

But all of the consequences of that law, passed in 2005, are not yet clear. Although the number of lawsuits that defendants shifted to federal courts rose after the law was passed in 2005, a report released in April by the Federal Judicial Center, a research and education agency created by Congress, found that the number of such shifts has since fallen. On the other hand, the number of class-action suits filed initially in federal courts has risen. And no one has reliable data on the total number of class-action suits filed in state courts.

PLAINTIFF-SIDE lawyers are innovating. Some firms are looking to courts outside the United States.

“If, for example, you have a company that defrauds its shareholders, shareholders around the world who invested in that company in any market should have the same rights to recover,” said Michael D. Hausfeld, partner at Cohen Milstein Hausfeld & Toll, which has opened an office in London and is allying with law firms in several countries. While the firm itself is not lobbying for legal changes to make it easier to sue in foreign courts, Mr. Hausfeld said, “we are involved with others who are doing that.”

So, despite some very high-profile casualties, the tort wars aren’t over. They may just be going global.

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